2011 (9) TMI 1153 - HC - Central Excise

Issues Involved:
1. Interpretation of tender conditions, specifically Clause 2.7 regarding outstanding liabilities.
2. Liability of the purchaser for statutory dues such as Central Excise and State Sales Tax.
3. Priority of crown debts over secured creditors.
4. Validity of contractual obligations in the absence of statutory provisions.

Detailed Analysis:

1. Interpretation of Tender Conditions:
The assets of M/s. Punjab Fibres Ltd. were auctioned by IFCI Ltd. under the SARFAESI Act. The tender conditions included Clause 2.7, which stated that the purchaser would be responsible for any outstanding liabilities over and above the purchase consideration. The petitioner, being the highest bidder, was subject to these conditions.

The Debt Recovery Tribunal (DRT) addressed whether IFCI failed to disclose statutory dues in the sale notice, which is mandatory under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The Tribunal concluded that the tender conditions explicitly required the purchaser to meet any outstanding liabilities, and this was accepted by the auction purchasers. Therefore, the Tribunal directed IFCI to ensure all outstanding liabilities were settled before issuing the final sale certificate.

2. Liability of the Purchaser for Statutory Dues:
The petitioner challenged the communications demanding Central Excise dues and State Sales Tax dues. The petitioner argued that crown debts were not the first charge on the property and could not be claimed from the purchaser. However, the court found that the tender conditions, specifically Clause 2.7, made the purchaser liable for these dues.

The court emphasized that Clause 2.7 required the purchaser to conduct due diligence regarding the unit's liabilities before submitting the tender. The petitioner was presumed to have examined the unit's financial documents and accepted the liabilities, including Central Excise and Sales Tax dues.

3. Priority of Crown Debts:
The petitioner cited several judgments to argue that crown debts have priority only among unsecured creditors after satisfying secured creditors. However, the court noted that this principle was not relevant to the present case. The issue was whether the petitioner was contractually bound to pay the outstanding liabilities as per the tender conditions.

The court referenced the Supreme Court's decision in AI Champdany Industries Limited v. Official Liquidator, which held that a purchaser is bound to discharge encumbrances notified in the sale notice. In this case, Clause 2.7 of the tender conditions explicitly made the purchaser liable for outstanding liabilities, irrespective of whether they were the first charge.

4. Validity of Contractual Obligations:
The court rejected the petitioner's reliance on cases such as M/s. D. Cawasji & Company and Orissa State Financial Corporation, which dealt with statutory liabilities. The court clarified that even in the absence of a statutory provision, parties could contractually agree on the payment of dues. Clause 2.7 was a valid contractual obligation, and the petitioner, having participated in the tender process, was bound by it.

Conclusion:
The court dismissed the petitions, holding that the petitioner was contractually obligated to satisfy the outstanding liabilities of Central Excise and State Sales Tax as per Clause 2.7 of the tender conditions. The court left open the question of whether penalties for non-deposit of these dues could be imposed on the petitioner, allowing the petitioner to dispute such claims before the relevant authorities.

Final Judgment:
The petitions were dismissed, and the petitioner was held liable for the outstanding statutory dues. The court allowed the petitioner to challenge any penalties imposed for non-payment separately.

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